Subchapter A. Examination and Financial Analysis …TITLE 28. INSURANCE Proposed Section Part 1....

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation

Subchapter A. Examination and Financial Analysis 28 TAC §7.68

1. INTRODUCTION. The Texas Department of Insurance (Department) proposes new

§7.68, concerning requirements for the filing of the annual statements, the quarterly

statements, other reporting forms, and electronic data filings with the Department and

the National Association of Insurance Commissioners (NAIC). The requirements are

applicable to insurance companies, including limited purpose subsidiary life insurance

companies established under the Insurance Code Chapter 841, Subchapter I; health

maintenance organizations (HMOs); nonprofit legal service corporations; the Texas

Health Insurance Pool; the Texas FAIR Plan Association; and the Texas Windstorm

Insurance Association (TWIA). These insurance companies, HMOs, and other

regulated entities are referred to collectively as “carriers” in this proposal.

The carriers will file the annual and quarterly statements and other reporting

forms with the Department and the NAIC as directed in the proposed rules. The

proposed new section adopts by reference the annual statement blanks, the quarterly

statement blanks, the annual and quarterly supplemental reporting forms, and the

related instruction manuals as adopted and published by the NAIC each year, as well

as the Texas-specific reporting forms specified in this proposed section. The reporting

forms and instructions include the (i) NAIC annual statement blanks; (ii) NAIC

quarterly statement blanks; (iii) related NAIC annual statement and quarterly statement

instruction manuals; (iv) NAIC separate accounts annual statement blank and

instructions; (v) NAIC combined property/casualty annual statement blank and

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation instructions; (vi) various NAIC supplemental to the NAIC blanks, including, but not

limited to Schedule SIS, management discussion and analysis, and supplemental

compensation exhibit; (vii) Texas-specific annual statement form and instructions for

farm mutual insurers not subject to proposed subsection (f); (viii) Texas specific annual

statement forms and instructions for statewide mutual assessment associations, local

mutual aid associations, mutual burial associations, and exempt associations, including

an annual statement, a release of contributions, a 3-1/2 percent Chamberlain reserve

table (reserve valuation), a reserve summary, an inventory of insurance in force by age

of issue or reserving year, and a summary of inventory of insurance in force by age and

calculation of net premiums; (ix) Texas-specific annual statement form and instructions

for nonprofit legal service corporations; (x) Texas-specific overhead assessment

exemption form for insurance company examination expenses; (xi) Texas-specific

analysis of surplus form; (xii) Texas-specific supplemental forms and instructions for

county mutual insurance companies and HMOs; and (xiii) Texas-specific annual

statement forms and instructions for Mexican casualty companies.

The carriers will use these forms to report their calendar year financial condition

and business operations and activities each year. The information provided by the

completion of the forms is necessary to allow the Department to monitor the solvency,

business activities, and statutory compliance of the carriers. The proposed new section

will be applicable to annual filings with the Department and the NAIC, beginning with

the year ending December 31, 2011, and each year thereafter; and to the quarterly

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation filings with the Department and the NAIC, beginning with the quarter ending on March

31, 2012, and each quarter thereafter.

Additionally, the proposed new section is necessary to outline a process for

annual notice by the Department of the annual filing requirements, and the opportunity

to petition for adoption of a rule amendment to this section. Specifically, the proposal

states that the Department annually will publish the annual, quarterly, and supplemental

filing checklists that reference the latest editions of the annual statement, quarterly

statement, forms and instructions adopted by the NAIC and the Texas-specific filing

forms and instructions. The proposed section further points out a process for any

interested person to petition the Department for the adoption of a rule amendment to

this section under §1.60 of this title (relating to Petition for Adoption of Rules), or its

successor, for exceptions to the latest editions of the blanks, supplemental reporting

forms, and instructions adopted by the NAIC or the Department.

Further, the proposed new section is necessary to implement HB 3161, 82nd

Regular Session, by specifying the financial and actuarial filing requirements for limited

purpose subsidiary life insurance companies established under the Insurance Code

Chapter 841, Subchapter I.

The proposed new section also defines terms relevant to the statement blanks

and reporting forms and provides the dates by which certain reports are to be filed.

Proposed subsection (a) explains the purpose of the section. Proposed subsection (b)

explains the scope and applicability of the section. Proposed subsection (c) provides

that the term "Texas Edition" refers to the blanks and forms promulgated by the

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation Commissioner. Proposed subsection (d) adopts by reference the forms described in

the section. Proposed subsection (e) specifies the hierarchy of laws in the event of a

conflict between the Insurance Code, this new section, and other Department

regulations and the NAIC instructions specified in the new section.

Proposed subsections (f) - (q) describe the forms, instructions and filing

requirements for the various types of insurers and other regulated entities. Specifically,

proposed subsection (f) specifies the filing requirements applicable to every domestic

carrier described in proposed subsections (i) – (m). Proposed subsection (g) requires

each foreign HMO and foreign insurer permitted or allowed to do the business of HMOs

in Texas to make the filings specified in proposed subsection (f)(1) – (4) electronically

with the NAIC and in paper copy with the Department. Proposed subsection (g) further

requires each foreign HMO and foreign insurer permitted or allowed to do the business

of HMOs in Texas to make the filings specified in proposed subsection (m)

electronically and in paper copy with the Department. Proposed subsection (h)

enumerates the filing requirements applicable to every foreign carrier described in

proposed subsections (i) – (l).

Proposed subsection (i) requires each life; life and accident; life and health;

accident; accident and health; mutual life; or life, accident and health insurance

company; stipulated premium company; limited purpose subsidiary life insurance

company; group hospital service corporation; and the Texas Health Insurance Pool to

complete and file the blanks, forms, and electronic filings with the NAIC and the

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation Department, as directed in proposed subsections (f) and (h), with the exceptions or

additional filings provided in this proposed subsection.

Proposed subsection (j) requires each fire; fire and marine; general casualty; fire

and casualty; or U.S. branch of an alien insurer; county mutual insurance company;

mutual insurance company other than life; Lloyd's plan; reciprocal or inter insurance

exchange; domestic risk retention group; life insurance company that is licensed to

write workers' compensation; any farm mutual insurance company that filed a property

and casualty annual statement for the previous calendar year or had gross written

premiums in excess of $6 million for the current calendar year; domestic joint

underwriting association; the Texas Mutual Insurance Company; the Texas Windstorm

Insurance Association; and the Texas FAIR Plan Association, as directed in proposed

subsections (f) and (h) and this proposed new subsection. Specifically, proposed

subsection (j)(4) and (5) enumerates the filing requirements for TWIA and the FAIR

Plan Association, respectively.

Proposed subsection (k) requires fraternal benefit societies to complete and file

the blanks, forms, and electronic filings described in subsections (f) and (h) with the

exceptions or additional filings provided in this subsection.

Proposed subsection (l) requires each title insurance company to complete and

file the blanks, forms, and electronic filings described in proposed subsections (f) and

(h).

Proposed subsection (m) requires each health maintenance organization

licensed pursuant to the Insurance Code Chapter 843 and each insurer that is subject

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation to life insurance statutes and is permitted or allowed to do the business of health

maintenance organizations to complete and file the blanks, forms, and electronic filings

described in proposed subsections (f) and (g), and the additional filings specified in this

subsection.

Proposed subsections (n) – (q) specify the Texas-specific filing requirements for

certain types of insurers. Specifically, proposed subsection (n) enumerates the Texas-

specific filing requirements for farm mutual insurance companies not subject to

proposed subsection (f). Proposed subsection (o) enumerates the Texas-specific filing

requirements for statewide mutual assessment associations, local mutual aid

associations, mutual burial associations, and exempt associations. Proposed

subsection (p) states the Texas-specific filing requirements for nonprofit legal service

corporations. Proposed subsection (q) specifies the Texas-specific filing requirements

for Mexican casualty insurance companies.

Proposed subsection (r) provides that nothing in this section prohibits the

Department from requiring any insurer or other regulated entity from filing other financial

reports with the Department or the NAIC.

Proposed subsection (s) outlines a process for annual notice of the annual,

quarterly, and supplemental filing checklists that reference the latest editions of the

annual statement, quarterly statement, forms and instructions adopted by the NAIC and

the Texas-specific filing forms and instructions. Proposed subsection (s) further

addresses a process for any interested person to petition the Department for the

adoption of a rule amendment to this section under §1.60 of this title (relating to Petition

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation for Adoption of Rules), or its successor, for exceptions to the latest editions of the

blanks, supplemental reporting forms, and instructions adopted by the NAIC or the

Department.

The forms and instructions are available for inspection in the office of the Texas

Department of Insurance, Financial Regulation Division, Financial Analysis, in the

William P. Hobby Jr. State Office Building at 333 Guadalupe, Tower Number III, Third

Floor, Austin, Texas. The NAIC forms and instructions may also be reviewed at

www.naic.org. The new section will replace the existing §7.68, which is proposed for

repeal and also published in this issue of the Texas Register. Existing §7.68 addresses

the requirements for the filing of the 2004 quarterly statements and 2004 annual

statements.

2. FISCAL NOTE. Danny Saenz, Deputy Commissioner, Financial Regulation Division,

has determined that, for each year of the first five years the proposed section will be in

effect, there will be no fiscal implications for state or local government as a result of

enforcing or administering the section. There will be no effect on local employment or

the local economy as a result of the proposal.

3. PUBLIC BENEFIT/COST NOTE. Mr. Saenz also has determined that for each year

of the first five years the proposed section is in effect, the public benefits anticipated as

a result of enforcing this section are the ability of the Department to provide financial

information to the public and other regulatory bodies as requested, and to monitor the

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation financial condition of insurance companies, HMOs, and other regulated entities licensed

in Texas to better assure financial solvency.

Existing §7.67 specifies the requirements for the filing of the 2010 annual

statements, the 2011 quarterly statements, other reporting forms, and electronic data

filings with the Department and the NAIC. Except for some new filing requirements for

limited purpose subsidiary life insurance companies, substantially the same

requirements in existing §7.67 for the filing of annual statements, quarterly statements,

other reporting forms, and electronic data filings with the Department and the NAIC are

also included in this proposal. Therefore, the same types of costs that were estimated

for compliance with the §7.67 requirements are also estimated for compliance with the

requirements in this proposal, with the addition of estimated costs for the new limited

purpose subsidiary life insurance companies filing requirements. The Department does

not anticipate any change in these estimated costs, except for the estimated costs for

limited purpose subsidiary life insurance companies to prepare and submit any new

filings required under proposed §7.68(f), (h), and (i) from those estimated for

compliance with the §7.67 requirements. Therefore, except for the additional estimated

costs to limited purpose subsidiary life insurance companies, the estimated costs

described in this proposal are consistent with the estimated compliance costs for the

§7.67 requirements, which are re-stated in the Public Benefit/Cost Note and Economic

Impact Statement and Regulatory Flexibility Analysis For Small and Micro Businesses

sections of this proposal.

Also, although not strictly required by the Government Code §2006.002(c), the

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation proposed section contains a number of accommodations that will mitigate the impact of

proposed §7.68 for certain carriers that, because of their carrier type, are more likely to

be small or micro business carriers. Specifically, proposed §7.68(i)(2) provides

stipulated premium companies with one additional month to file their annual statements

and an additional month to make certain other related filings. Proposed §7.68(n)

authorizes a simplified financial statement form for farm mutual insurance companies

that write less than $6 million in premium. Proposed §7.68(n) also does not require

farm mutual insurance companies that write less than $6 million in premium to (i) pay

NAIC filings fees, (ii) acquire software to prepare financial statement filings with the

NAIC, or (iii) file quarterly financial statements with the Department. Proposed

§7.68(o) authorizes a simplified annual financial statement form for statewide mutual

assessment associations, local mutual aid associations, mutual burial associations, and

exempt associations; and does not require these types of carriers to (i) acquire

software to prepare financial statement filings with the NAIC; or (ii) file quarterly

financial statements with the Department. Under proposed §7.68(p), nonprofit legal

service corporations are not required to pay NAIC filings fees or to acquire software to

prepare financial statement filings with the NAIC. Under proposed §7.68(q), Mexican

casualty insurance companies are not required to pay NAIC filing fees or acquire

software to prepare financial statement filings with the NAIC.

The probable economic cost to persons required to comply with the proposed

section depends on several factors including the size, type and complexity of the

carrier. Each carrier subject to proposed §7.68 is required by statute to provide the

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation Department with various annual reports on its operations. The Insurance Code

§802.055 provides that an insurance company shall pay all costs of preparing and

furnishing to the NAIC the information required under the Insurance Code §802.052,

including any related filing fees. The reports and forms required by this proposal

generally request information that is already captured or created by the carrier as

necessary to its business operations. Therefore, the additional cost involved generally

relates to the transfer of that information from the carrier’s records to the required report

or form. It is anticipated that a carrier, regardless of size, will utilize employees who are

familiar with the records of the carrier and accounting practices in general. Based on

information obtained by the Department, such individuals are estimated to be

compensated from $17 to $50 per hour.

The Department anticipates that larger business carriers, because of the larger

size and relatively more complex operations, will take more time to transfer the required

information from their records to the financial forms and reports to be adopted by this

proposal. The Department also anticipates that large business carriers will likely

compensate staff at the higher end of the salary range. Therefore, based on the

Department’s experience, the overall labor costs for large business carriers to transfer

the required information from their records to the required financial forms and reports

will generally be more than the overall labor costs for small or micro business carriers.

The overall costs to transfer the information from a carrier’s records also may vary

based upon factors such as the type of carrier (e.g., life, accident and health, or

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation property and casualty), the nature of the risks insured, and the type of software used by

the carrier.

Beginning with the year-end 2010 financial reporting requirements, the TWIA

was required by the proposed section to submit to the Department annual and quarterly

financial statements prepared in accordance with GAAP, in addition to the prior

requirements to submit financial statements prepared in accordance with SAP. The

requirement for the TWIA to prepare and submit financial statements prepared in

accordance with GAAP is necessary for the TWIA and the Department to comply with

financial reporting requirements in the Government Code Chapter 2101, Subchapter, B,

relating to a component unit of a statewide reporting entity, which are administered by

the Comptroller. The Department anticipates that the TWIA will use existing staff to

comply with these requirements, in which case no additional costs to the TWIA are

required as a result of this proposal.

If the TWIA determines that it must hire additional staff resources to comply with

the Government Code §2101.011(d) and this proposed section, the cost of compliance

will relate to the cost of that additional staff’s salary and related benefits times the

amount of hours necessary to prepare the required GAAP financial statements. The

Department anticipates that the number of hours necessary to produce the GAAP

financial statements, and thus the TWIA’s costs of compliance, will vary significantly

depending upon a number of factors, including: (i) the adequacy and accuracy of the

TWIA’s books and records; (ii) the level of automation of the TWIA’s financial reporting

systems; (iii) the sufficiency of the TWIA’s system of internal control over financial

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation reporting, including whether any unremediated material weaknesses exist; (iv) the

number and qualifications of the TWIA’s accounting personnel; and (v) whether the

financial statements cover a period that includes one or more catastrophic loss events

for the TWIA. Based upon these factors, the Department anticipates that the time and

cost for the TWIA to prepare a set of GAAP financial statements could vary from 16 to

80 hours. Moreover, the Department anticipates that the TWIA could hire an

accountant to prepare these GAAP financial statements at the mean salary rate of

$31.63 per hour, as set forth for similar accountant positions in the May 2009 State

Occupational Employment and Wage Estimates for Texas published by the U.S.

Department of Labor at http://www.bls.gov/oes/current/oes_tx.htm.

The Department believes that the TWIA has the information necessary to

estimate its own compliance costs. Further, the Government Code §2101.011(d)

requires the reporting of the financial information for any entity that the Comptroller

determines is a component unit of a statewide reporting entity in accordance with GAAP

as prescribed or modified by the GASB or its successor. Since the TWIA has been

deemed a component unit of a statewide reporting entity under §2101.011(d), any costs

to the TWIA for preparing and filing the annual GAAP financial statements with the

Department, results from statutory requirements and not as a result of the adoption,

enforcement, or administration of this proposal.

Most carriers are required under proposed §7.68 to file actuarial opinions on the

reasonableness of their reserves with the company’s annual statement, and to obtain a

corresponding Actuarial Opinion Summary prepared in accordance with §7.9 of this

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation subchapter. Beginning with the 2010 Property and Casualty Annual Statement, the

TWIA was similarly required, under existing §7.67(e)(1)(N) and proposed §7.68(j)(2)

and (4), to obtain an actuarial opinion on its reserves and a corresponding Actuarial

Opinion Summary. In order to obtain the actuarial opinion and Actuarial Opinion

Summary in accordance with the proposed section, the TWIA, like other carriers, will

need to obtain the services of an actuary who will perform the necessary analysis and

prepare the necessary work papers to support expressing an opinion on the

reasonableness of the reserves held by the TWIA. The corresponding cost for the

TWIA to obtain this actuarial opinion will vary depending on a number of factors,

including whether a current employee of the TWIA or an outside consulting firm is

utilized to prepare the required actuarial opinion and Actuarial Opinion Summary, the

adequacy and accuracy of the books and records maintained by the TWIA, the

complexity of the actuarial techniques that are necessary to perform this analysis, the

level of legal proceedings related to unresolved claims, and recent storm activity. The

Department anticipates that the TWIA will elect to use the services of an existing staff

actuary, in which case no additional costs to the TWIA are required as a result of this

proposal. If the TWIA elects to use the services of an outside consulting actuary, it will

incur actuarial costs to prepare the actuarial opinion and the Actuarial Opinion

Summary. The proposed section requires the appointed actuary to prepare an actuarial

opinion in accordance with the Annual Statement Instructions, Property and Casualty.

The proposed section also requires the appointed actuary to prepare the Actuarial

Opinion Summary in accordance with §7.9. Based upon the factors listed previously,

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation the Department anticipates that the time for a consulting actuary to prepare an actuarial

opinion and Actuarial Opinion Summary could vary from 50 - 75 hours. The

Department further anticipates that the TWIA could hire an outside consulting actuary

to prepare an actuarial opinion and Actuarial Opinion Summary at the mean salary rate

of $50.33 per hour, as set forth for similar accountant positions in the May 2009 State

Occupational Employment and Wage Estimates for Texas published by the U.S.

Department of Labor at http://www.bls.gov/oes/current/oes_tx.htm. While the TWIA

may elect, at its discretion, to incur additional costs, the TWIA controls that decision

and the Department believes that such additional costs are not required by the

proposed section.

Most carriers are required under proposed §7.68 to file electronic copies of the

company’s annual statement and quarterly statements with the NAIC. Beginning with

the 2010 Property and Casualty Annual Statement and the 2011 Property and Casualty

Quarterly Statements, the TWIA and the Texas FAIR Plan Association were required,

under existing §7.67(e)(4) and proposed §7.68(f) and (j)(4) and (5), respectively, to

prepare and file electronic filings with the NAIC, in addition to preparing and filing paper

copies of these carriers’ annual statements and quarterly statements. The TWIA and

the Texas FAIR Plan Association must complete and file the NAIC electronic filings in

accordance with the NAIC’s annual statement and quarterly statement instructions for

property and casualty, and the NAIC data specifications and instructions and shall

include PDF format filing. In order to prepare and file the financial statements with the

NAIC in accordance with the proposed section, the Department anticipates that the

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation TWIA and the Texas FAIR Plan Association, like other carriers, will need to purchase

software. The cost of software used to prepare the financial statements is

approximately $2,280 for a single carrier. The cost of software may be greater or less

depending on the amount charged by the vendor and any extra services that are

agreed to between the carrier and the vendor.

The fees associated with each carrier to file electronically with the NAIC

database are estimated to range from $247, for carriers with the smallest premium

volume, to $69,428, for carriers with the largest premium volume with a limit for insurer

groups of $208,284. The Insurance Code §802.055 requires an insurance company to

pay all costs of preparing and furnishing to the NAIC the information required under the

Insurance Code §802.052. Therefore, any costs to an insurance company for

preparing and filing the annual statement with the NAIC, including software and filing

fee costs, results from statutory requirements and not as a result of the adoption,

enforcement, or administration of this proposal.

The Department anticipates that the cost of compliance as detailed in this Public

Benefit/Cost Note will be relatively more significant for carriers licensed in Texas for

less than one year. This is due to the additional time required for carrier staff to

become familiar with the requirements of this proposal, initial software acquisitions

costs, and the need to implement systems to capture the information required to be

reflected in the financial statements filed with the Department and the NAIC. Because

the Department for many years has routinely required the preparation and filing of

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation substantially similar financial statements, which are also required by this proposal, most

of these costs for carriers licensed for one year or more have already been incurred.

4. ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS

FOR SMALL AND MICRO BUSINESSES. In accordance with the Government Code

§2006.002(c), the Department has determined that proposed §7.68 will not have an

adverse economic effect on small or micro businesses. As previously stated in the

Public Benefit/Cost Note part of this proposal, except for some new filing requirements

for limited purpose subsidiary life insurance companies, substantially all of the

requirements in existing §7.67, that apply to the most recent annual and quarterly

statement filings, are also proposed in this proposal for the filing of the annual

statements, the quarterly statements, other reporting forms, and electronic data filings

with the Department and the NAIC. Therefore, with the exception of the new filing

requirements for limited purpose subsidiary life insurance companies, the same types

of costs that were identified for compliance by small and micro business carriers for the

filings under §7.67 are also identified for small and micro business carriers for

compliance with the requirements in this proposal.

Further, the Department does not anticipate any change in the estimated costs

for this proposal from those estimated for compliance with the §7.67 filing requirements,

except for the estimated cost to limited purpose subsidiary life insurance companies to

prepare and file any new paper copy filings with the Commissioner and/or electronic

copies of their financial statements with the NAIC under proposed §7.68(i). The

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation Department also does not anticipate any difference in the economic impact on small

and micro business carriers from that determined for compliance with the §7.67 filing

requirements. Therefore, the Department’s economic impact statement and regulatory

flexibility analysis for compliance by small and micro businesses with the requirements

in this proposal is consistent with the economic impact statement and regulatory

flexibility analysis for §7.67.

The Department has determined that this proposal, like the proposal for existing

§7.67, contains several requirements that must be analyzed in order to determine costs

to small and micro business carriers required to comply with this proposal. First,

proposed §7.68(b) and (f) - (q) require that each carrier provide the Department with

financial reports and related information. Second, proposed §7.68(b) and (f) - (m)

require that each carrier make concurrent filings of their financial statement with the

NAIC that results in related filing fees. Third, proposed §7.68(b) and (f) - (m) essentially

require that each carrier purchase software to prepare its financial statements and

make the related filings with the NAIC. Each carrier is required by statute to provide the

Department with various annual reports on its operations. As noted in the Public

Benefit/Cost Note portion of this proposal, the Insurance Code §802.055 provides that

an insurance company shall pay all costs of preparing and furnishing to the NAIC the

information required under the Insurance Code §802.052, including any related filing

fees. Therefore, any costs to an insurance company for preparing and filing the annual

statement with the NAIC, including costs of software and filing fees, results from

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation statutory requirements and not as a result of the adoption, enforcement, or

administration of this proposal.

Proposed §7.68(b) and (f) - (q); Preparation of Financial Statements. As

required by the Government Code §2006.002(c), the Department has determined that

approximately 75 to 150 of the carriers specified in proposed §7.68(b) are small or

micro business carriers that will be required to comply with the requirements in

proposed §7.68(f) – (q) to prepare financial statements that reflect the carriers’

condition and to file these statements with the Department and the NAIC. These small

or micro business carriers will incur routine costs associated with completing the

financial statements.

Also, as required by the Government Code §2006.002(c), the Department has

determined that these routine costs will not have an adverse economic effect on the

approximately 75 to 150 small or micro business carriers. These routine costs of

compliance will vary between large business carriers and small or micro business

carriers based upon the carrier’s type and size and other factors, including the (i)

character of the carrier’s assets; (ii) kinds and nature of the risks insured; (iii) type of

software used by the carrier to complete its annual statement; and (iv) employee

compensation expenses. The Department’s cost analysis and resulting estimated

routine costs for carriers in the Public Benefit/Cost Note portion of this proposal are

equally applicable to small and micro business carriers. As indicated in the Public

Benefit/Cost Note analysis, these routine costs will likely be less for small or micro

business carriers, primarily because small or micro business carriers will incur less

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation overall labor costs in transferring information from their records to the required financial

forms and reports. This results from their smaller size and relatively less complex

operations, which will generally require less time to transfer the information from their

records to the financial forms and reports required in this proposal. Small or micro

business carriers may also incur relatively lower labor costs on a per hour basis

because small or micro business carriers will often compensate staff at the lower end of

the salary range.

Under the Government Code §2006.002(c), before adopting a rule that may

have an adverse economic effect on small or micro businesses, an agency is required

to prepare in addition to an economic impact statement a regulatory flexibility analysis

that includes the agency's consideration of alternative methods of achieving the

purpose of the proposed rule. Because the Department has determined that the

routine costs to comply with this proposal, i.e., preparing the financial forms and

reports, will not have an adverse economic effect on small or micro business carriers,

the Department is not required to consider alternative methods of achieving the

purpose of these requirements in the proposed rule.

Nevertheless and although not strictly required by the Government Code

§2006.002(c), the proposal contains several provisions that will mitigate the impact of

proposed §7.68 for certain carriers that, because of their carrier type, are more likely to

be small or micro business carriers. Specifically, proposed §7.68(i)(2) provides

stipulated premium companies with one additional month to file their annual statements

and related filings than the time required for large business carriers. Section 7.68(i)(2)

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation further exempts stipulated premium companies from the requirement that applies to

most other life carriers to file quarterly financial statements with the Department, if

certain conditions are met. Proposed §7.68(n) authorize a simplified financial

statement form for farm mutual insurance companies that write less than $6 million in

premium. Unlike the requirements that apply to all other property and casualty carriers,

proposed §7.68(n) do not require that farm mutual insurance companies that write less

than $6 million in premium to file quarterly financial statements with the Department.

Proposed §7.68(o) authorizes a simplified financial statement form for statewide mutual


exempt associations. Unlike the requirements that apply to other life carriers, proposed

§7.68(o) does not require that quarterly financial statements be filed with the

Department by statewide mutual assessment associations, local mutual aid

associations, mutual burial associations or exempt associations.

The Department anticipates that the cost of compliance as detailed in the Public

Benefit/Cost Note will be relatively more significant for carriers licensed in Texas for

less than one year. This is because of the additional time required for the carrier’s staff

to become familiar with the requirements of the proposal and the need to implement

systems to capture the information required to be reflected in the financial statements

filed with the Department and the NAIC. Because the Department for many years has

routinely required the preparation and filing of substantially similar financial statements,

which are also required by the proposal, most of these costs for carriers licensed for

one year or more have already been incurred.

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation Proposed §7.68(b) and (f) - (m); NAIC Filing Fee. As required by the

Government Code §2006.002(c), the Department has determined that approximately 50

to 100 of the carriers specified in proposed §7.68(b) are small or micro business

carriers that will be required to comply with the requirements in proposed §7.68(f) - (m)

to make concurrent financial statement filings with the NAIC. These small or micro

business carriers will incur routine costs associated with related filing fees.



approximately 50 to 100 small or micro business carriers. The Department’s cost

analysis and resulting estimated costs for carriers to make concurrent financial

statement filings with the NAIC in the Public Benefit/Cost Note portion of this proposal

are equally applicable to small or micro business carriers. As indicated in the Public

Benefit/Cost Note analysis, these costs of compliance will vary between large business

carriers and small or micro business carriers based upon the carrier’s premium volume.

These fees are on a sliding scale basis and will be less for small or micro business

carriers that write smaller amounts of premium and greater for large carriers that write

larger amounts of premium. These fees are estimated to range from $247 for carriers

with the smallest premium volume, to progressively greater amounts for carriers with

the largest premium volume. As examples, a carrier with $100,000 in premium will

incur a filing fee of $247; a carrier with $6 million in premium will incur a filing fee of

$1,444; and a carrier with $4 billion in premium will incur a filing fee of $69,428. These

fees range from .002 of the premium for carriers with the smallest premium volume up

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation to .00002 of the premium for carriers with the highest premium volume. In each

instance, the Department believes that costs correspond to a nominal and routine cost

of business. Accordingly, these routine costs will be less for small or micro business

carriers because of their relatively smaller premium base.






routine costs to comply with this proposal, i.e., making concurrent filings with the NAIC,

will not have an adverse economic effect on small or micro businesses, the Department

is not required to consider alternative methods of achieving the purpose of these

requirements in the proposed rule. Moreover, the Insurance Code §802.055 requires

an insurance company to pay all costs of preparing and furnishing to the NAIC the


fees. Accordingly, the cost to insurance companies of preparing and filing the annual

statement with the NAIC results from statutory requirements and not as a result of the

adoption, enforcement, or administration of this proposal.


§2006.002(c), the proposed section contains a number of provisions that will mitigate

the impact of proposed §7.68 for certain carriers that, because of their carrier type, are

more likely to be small or micro business carriers. Specifically, proposed §7.68(n) does

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation not require farm mutual insurance companies that write less than $6 million in premium

to pay these filing fees. Proposed §7.68(o) does not require statewide mutual


exempt associations to pay these filing fees. Proposed §7.68(p) does not require

nonprofit legal service corporations to pay these filing fees. Proposed §7.68(q) does

not require Mexican casualty insurance companies to pay these filing fees.

Proposed §7.68(b) and (f) - (m); Software Expenses. As required by the

Government Code §2006.002(c), the Department has determined that approximately 50

to 100 of the carriers specified in proposed §7.68(b) are small or micro business

carriers that will essentially be required by proposed §7.68(f) - (m) to purchase software

to prepare their financial statements and make the related filings with the NAIC. These

small or micro business carriers will incur routine costs associated with purchasing this

software.



approximately 50 to 100 small or micro business carriers. The Department’s cost

analysis and resulting estimated costs for carriers to purchase this software contained

in the Public Benefit/Cost Note portion of this proposal are equally applicable to small or

micro business carriers. As indicated in the Public Benefit/Cost Note analysis, these

costs of compliance may vary based upon a number of factors. The cost of software to

prepare the financial statements is approximately $2,280 for a single company. The

cost of software may be greater or less depending on the amount charged by the

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation vendor, the type of software needed and any extra services that are agreed to between

the company and the vendor.






routine costs to comply with this proposal, i.e., the purchase of software, will not have

an adverse economic effect on small or micro business carriers, the Department is not

required to consider alternative methods of achieving the purpose of these

requirements in the proposed rule. Moreover, the Insurance Code §802.055 requires

an insurance company to pay all costs of preparing and furnishing to the NAIC the


fees. Accordingly, the cost to an insurance company of preparing and filing the annual

statement with the NAIC results from statutory requirements and not as a result of the

adoption, enforcement, or administration of this proposal. Furthermore, each carrier

subject to this proposal is required by statute to provide the Department with various

annual reports on its operations, and therefore, the related costs result from statutory

requirements and not as a result of the adoption, enforcement, or administration of this

proposal.


§2006.002(c), the proposed section contains several provisions that will mitigate the

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation impact of proposed §7.68 for certain carriers that, because of their carrier type, are

more likely to be small or micro business carriers. Specifically, proposed §7.68(i)(2)

exempts stipulated premium companies from the requirement that applies to most other

life carriers to file quarterly interim financial statements with the Department, if certain

conditions are met. This exemption will lessen the software needs of stipulated

premium companies. Proposed §7.68(n) does not require that farm mutual insurance

companies that write less than $6 million in premium to acquire this software and

thereby incur the related expense. Proposed §7.68(o) does not require statewide

mutual assessment associations, local mutual aid associations, mutual burial

associations, and exempt associations to acquire this software and thereby incur the

related expense. Proposed §7.68(p) does not require that nonprofit legal service

corporations to acquire this software and incur the related expense. Proposed §7.68(q)

does not require Mexican casualty insurance companies to acquire this software and

incur the related expense.

Additionally, the Department anticipates that the cost of compliance as detailed

in this Public Benefit/Cost Note part of the proposal will be relatively more significant for

carriers licensed in Texas for less than one year because of initial software acquisitions

costs. Because the Department for many years has routinely required the preparation

and filing of substantially similar financial statements, which are also required by the

proposal, most of these software costs for carriers licensed for one year or more have

already been incurred.

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation 5. TAKINGS IMPACT ASSESSMENT. The Department has determined that no

private real property interests are affected by this proposal and that this proposal does

not restrict or limit an owner’s right to property that would otherwise exist in the absence

of government action and, therefore, does not constitute a taking or require a takings

impact assessment under the Government Code §2007.043.

6. REQUEST FOR PUBLIC COMMENT. To be considered, written comments on the

proposal must be submitted no later than 5:00 p.m. on February 6, 2012, to Sara Waitt,

Acting General Counsel, Mail Code 113-2A, Texas Department of Insurance, P. O. Box

149104, Austin, Texas 78714-9104. An additional copy of the comments should be

submitted simultaneously to Danny Saenz, Deputy Commissioner, Financial Regulation

Division, Mail Code 305-2A, Texas Department of Insurance, P. O. Box 149104, Austin,

Texas 78714-9104. Any request for a public hearing on the proposal should be

submitted separately to the Office of the Chief Clerk, Mail Code 113-2A, Texas

Department of Insurance, P. O. Box 149104, Austin, Texas 78714-9104, before the

close of the public comment period. If a hearing is held, oral and written comments

presented at the hearing will be considered.

7. STATUTORY AUTHORITY. The new section is proposed under the following

provisions of the Insurance Code. Sections 802.001 - 802.003 and 802.051 - 802.056

authorize the Commissioner to make changes in the forms of the annual statements

required of insurance companies of any kind, as shall seem best adapted to elicit a true

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation exhibit of their condition and methods of transacting business, and require certain

insurers to make filings with the National Association of Insurance Commissioners.

Chapters 2201, 2210, and 2211 and §§841.255, 842.003, 842.201, 842.202, 843.151,

843.155, 861.254, 861.255, 862.001, 862.003, 882.001, 882.003, 883.002, 883.204,

884.256, 885.401, 885.403 - 885.406, 886.107, 887.009, 887.060, 887.401 - 887.407,

911.001, 911.304, 912.002, 912.201 - 912.203, 912.301, 941.252, 942.201, 961.002,

961.003, 961.052, 961.202, 982.004, 982.251 - 982.254, 982.101, 982.103, 984.101 -

984.103, 984.153, 984.201, 984.202, 1301.009, 1506.057, 1506.058, 2210.008,

2210.101, 2210.102, 2210.152, 2211.058, 2551.001, and 2551.152 require the filing of

financial reports and other information by insurers and other regulated entities and

provide specific rulemaking or regulatory authority to the Commissioner relating to

those insurers and other regulated entities.

Sections 982.001, 982.002, 982.004, 982.052, 982.102 - 982.104, 982.106,

982.108, 982.110 - 982.112, 982.201 - 982.204, 982.251 - 982.255, and 982.302 -

982.306 provide the conditions under which foreign and alien insurers are permitted to

do business in this state and require foreign and alien insurers to comply with the

provisions of the Insurance Code. Sections 844.001-844.005, 844.051-844.054, and

844.101 specify statutory requirements relating to nonprofit health corporations and

authorize the Commissioner to adopt rules to implement the regulation of nonprofit

health corporations holding a certificate of authority under the Insurance Code, Title 2,

Chapter 844.

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation Section 2210.008 authorizes the Commissioner to adopt rules in the manner

prescribed in the Insurance Code, Chapter 36, Subchapter A, as reasonable and

necessary to implement Chapter 2210. Section 2210.101 provides that the board of

directors of the Texas Windstorm Insurance Association is responsible and accountable

to the Commissioner. Section 2210.102 requires the Commissioner to appoint the

board of directors of the Texas Windstorm Insurance Association. Section 2210.152

requires the plan of operation for the Texas Windstorm Insurance Association to

provide for the efficient, economical, fair, and nondiscriminatory administration of the

Association, and to include provisions as considered necessary by the Department to

implement the purposes of Chapter 2210.

Section 2211.057 charges the Commissioner with the authority to supervise the

Texas FAIR Plan Association and the inspection bureau. Section 2211.057(1) grants

the Commissioner the power to examine the operations of the Texas FAIR Plan

Association and the inspection bureau through free access to all books, records, files,

papers, and documents related to the operation of the Texas FAIR Plan Association

and the inspection bureau. Section 2210.057(4) grants the Commissioner the power to

require reports from the Texas FAIR Plan Association concerning the risks the Texas

FAIR Plan Association insurers under Chapter 2211 as the Commissioner considers

necessary.

Section 421.001 requires insurers to establish adequate reserves and provides

for the adoption of each current formula for establishing reserves applicable to each line

of insurance. Section 32.041 requires the Department to furnish the statement blanks

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation and other reporting forms necessary for companies to comply with the filing

requirements. Section 36.001 provides that the Commissioner of Insurance may adopt

any rules necessary and appropriate to implement the powers and duties of the Texas

Department of Insurance under the Insurance Code and other laws of this state.

8. CROSS REFERENCE TO STATUTE. The following statutes are affected by this

proposal: The Insurance Code Chapters 2201, 2210, and 2211 and §§32.041,

421.001, 802.001 - 802.003, 802.051 - 802.056, 841.255, 842.003, 842.201, 842.202,

843.151, 843.155, 844.001 - 844.005, 844.051 - 844.054, 844.101, 861.254, 861.255,

862.001, 862.003, 882.001, 882.003, 883.002, 883.204, 884.256, 885.401, 885.403 -

885.406, 886.107, 887.009, 887.060, 887.401 - 887.407, 911.001, 911.304, 912.002,

912.201 - 912.203, 912.301, 941.252, 942.201, 961.002, 961.003, 961.052, 961.202,

982.001, 982.002, 982.004, 982.052, 982.101 - 982.104, 982.106, 982.108, 982.110 -

982.112, 982.251 - 982.255, 982.302 - 982.306, 984.153, 984.201, 984.202, 1301.009,

1506.057, 1506.058, 2210.008, 2210.101, 2210.102, 2210.152, 2211.058, 2551.001,

and 2551.152.

9. TEXT.

§7.68. Requirements for Filing the Annual Statements, the Quarterly Statements,

Other Reporting Forms, and Electronic Filings with the Texas Department of

Insurance and the NAIC.

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation (a) Purpose. This section specifies the requirements for insurers and other

regulated entities to file the annual statements, the quarterly statements, other reporting

forms, and electronic data filings with the department and the National Association of

Insurance Commissioners (NAIC) necessary to report information concerning the

financial condition and business operations and activities of insurers.

(b) Scope and Applicability. This section applies to all insurers and certain other

regulated entities authorized to do the business of insurance in this state and includes,

but is not limited to, life insurers; accident insurers; life and accident insurers; life and

health insurers; accident and health insurers; life, accident and health insurers; mutual

life insurers; stipulated premium insurers; limited purpose subsidiary life insurance

companies under the Insurance Code Chapter 841, Subchapter I; group hospital

service corporations; fire insurers; fire and marine insurers; U.S. branches of alien

insurers; Mexican casualty insurers; general casualty insurers; fire and casualty

insurers; mutual insurers other than life; statewide mutual assessment companies; local

mutual aid associations; mutual burial associations; exempt associations; county

mutual insurers; Lloyd's plans; reciprocal and inter-insurance exchanges; domestic risk

retention groups; domestic joint underwriting associations; title insurers; fraternal benefit

societies; farm mutual insurers; health maintenance organizations; nonprofit health

corporations; nonprofit legal services corporations; the Texas Health Insurance Pool;

the Texas Mutual Insurance Company; the Texas Windstorm Insurance Association;

and the Texas FAIR Plan Association. Insurers and other regulated entities must

properly report each calendar year to the department and the NAIC by completing, in

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation accordance with applicable instructions, the appropriate paper copy annual and

quarterly statement blanks, other reporting forms, and electronic filings specified in this

section. This section shall be applicable to annual filings with the department and the

NAIC, beginning with the year ending December 31, 2011, and each year thereafter;

and to the quarterly filings with the department and the NAIC, beginning with the quarter

ending on March 31, 2012, and each quarter thereafter.

(c) Definition. In this section, "Texas Edition" refers to the blanks and forms

promulgated by the commissioner.

(d) NAIC and TDI Specific Forms and Instructions. The commissioner adopts by

reference the annual statement blanks, the quarterly statement blanks, the annual and

quarterly supplemental reporting forms, and the related instruction manuals as adopted

and published by the NAIC each year; and the Texas-specific reporting forms specified

in this section. The Texas-specific forms are available from the Texas Department of

Insurance, Financial Regulation Division, Financial Analysis, Mail Code 303-1A, P. O.

Box 149104, Austin, Texas 78714-9104. Copies of the latest editions of the blanks,

supplemental reporting forms, and related instruction manuals adopted and published

by the NAIC may be obtained from the NAIC, and can be filed electronically using

software available from vendors.

(e) Conflicts with Other Laws. In the event of a conflict between the Insurance

Code, any currently existing department rule, form, instructions, or any specific

requirement of this section and the NAIC instructions listed in this section, the

Insurance Code, the department rule, form, instruction, or the specific requirements of

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation this section shall take precedence and in all respects control.

(f) General Filing Requirements for Domestic Insurers and Other Domestic

Regulated Entities. Every domestic insurer and other domestic regulated entity must

complete and file the following reports and forms using the latest editions of the annual

and quarterly statement blanks, forms, and related instruction manuals adopted by the

NAIC that are appropriate for the type of business written by the insurer or regulated

entity:

(1) an annual statement, in paper copy with the department and

electronically with the NAIC, due on or before March 1 for the preceding year ending

December 31;

(2) quarterly statements, in paper copy with the department and

electronically with the NAIC, due on or before May 15, August 15, and November 15;

(3) all the annual and quarterly supplements adopted by the NAIC

including, but not limited to, the Management’s Discussion and Analysis, in paper

copies with the department and electronically with the NAIC, prepared and filed in

accordance with and on or before dates specified in the latest editions of the forms,

instructions, and guidelines adopted by the NAIC;

(4) a Statement of Actuarial Opinion, in paper copy with the department

and electronically with the NAIC, due on or before March 1 for the preceding year

ending December 31;

(5) a Schedule SIS, in paper copy only with the department, due on or

before March 1 for the preceding year ending December 31;

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation (6) a Supplemental Compensation Exhibit, in paper copy only with the

department, due on or before March 1 for the preceding year ending December 31;

(7) a Texas Overhead Assessment Exemption Form (Texas Edition), in

paper copy only with the department, due on or before March 1 for the preceding year

ending December 31. This form is to be filed only by domestic insurance companies

that have qualified pension contracts under the Insurance Code §401.151; otherwise,

this form should not be filed;

(8) an Analysis of Surplus (Texas Edition), in paper copy only with the

department, due on or before March 1 for the preceding year ending December 31; and

(9) an advertising certificate of compliance with its annual statement

filing, in paper copy only with the department, prepared and filed in accordance with

§21.116 of this title (relating to Special Enforcement Procedures for Rules Governing

Advertising and Solicitation of Insurance).

(g) General Filing Requirements for Foreign Health Maintenance Organizations

and Foreign Insurers Doing Health Maintenance Organization Business or Capitation.

Every foreign health maintenance organization and foreign insurer permitted or allowed

to do the business of health maintenance organizations must file the filings specified in

subsection (f)(1) - (4) of this section electronically with the NAIC and in paper copy with

the department; and the filings specified in subsection (m) of this section electronically

and in paper copy with the department.

(h) General Filing Requirements for Foreign Insurers and Other Foreign

Regulated Entities. Each foreign insurer or other foreign regulated entity described in

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation subsections (i) – (l) of this section:

(1) must prepare and file electronically with the NAIC the filings specified

in subsection (f)(1) – (4) of this section on or before the due dates required under those

provisions;

(2) if filing only electronically with the NAIC and not filing a paper copy

with the department, must file with the department, in paper copy, a signed annual

statement jurat page, along with the advertising certificate of compliance required under

§21.116 of this title, on or before March 1; and a signed jurat page for each quarter on

or before May 15, August 15, and November 15, respectively, in lieu of filing the entire

paper filings;

(3) the commissioner reserves the right to request paper copies of any

paper or electronic filings made by foreign companies in their state of domicile or the

NAIC; and

(4) a foreign insurer that is classified as a commercially domiciled insurer

under the Insurance Code §823.004 annually must file an Analysis of Surplus (Texas

Edition) in paper copy with the department, on or before March 1 for the prior year

ending December 31.

(i) Filing Requirements for Life, Accident and Health Insurers. Each life; life and

accident; life and health; accident; accident and health; mutual life; or life, accident and

health insurance company; stipulated premium company; limited purpose subsidiary life

insurance company; group hospital service corporation; and the Texas Health

Insurance Pool must complete and file the blanks, forms, and electronic filings as

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation directed in subsections (f) and (h) of this section and this subsection. The electronic

filings of these forms or reports with the NAIC must be completed and filed in

accordance with the NAIC data specifications and instructions for electronic filing and

must include PDF format filing. Insurers and other regulated entities specified in this

subsection and engaged in business authorized under the Insurance Code Chapters

843 or 848 may have additional reporting requirements under subsections (g) and (m)

of this section. Domestic and foreign insurers or other regulated entities described in

this subsection must prepare and file the reports and forms specified in subsections (f)

and (h) of this section, with the following exceptions or additional filings:

(1) a separate accounts annual statement (required of companies

maintaining separate accounts), in paper copy with the department and electronically

with the NAIC, due on or before March 1 for the preceding year ending December 31.

(2) for stipulated premium companies not subject to the Insurance Code

§884.406, all filings with due dates of March 1 under subsection (f) or (h) of this section,

are due on or before April 1. Additionally, a stipulated premium company, unless

specifically requested to do so by the department, is not required to file quarterly data

filings with the department or with the NAIC, if it meets all three of the following

conditions:

(A) it is authorized to write only life insurance on its certificate of

authority;

(B) it collected premiums in the prior calendar year of less than $1

million; and

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation (C) it had a profit from operations in the prior two calendar years.

(3) The Statement of Actuarial Opinion required under subsections (f)(4)

and (h)(1) of this section must be prepared and filed in accordance with the following:

(A) Companies filing the NAIC Life, Accident and Health Annual

Statement and the Statement of Actuarial Opinion, attached to the NAIC Life, Accident

and Health Annual Statement must follow the applicable provisions of Chapter 3,

Subchapter Q, of this title (relating to Actuarial Opinion and Memorandum Regulation),

except for companies exempted from the asset adequacy analysis pursuant to §3.1608

of this title (relating to Asset Adequacy Analysis Exemption). Notwithstanding §3.1608

of this title, limited purpose subsidiary life insurance companies annually must prepare

and file the asset adequacy analysis required under Chapter 3, Subchapter Q of this

title. For those companies exempted from the asset adequacy analysis pursuant to

§3.1608 of this title, the format provided by instructions 1 – 12 of the NAIC Annual

Statement Instructions, Life, Accident and Health, must be followed.

(B) Companies filing the NAIC Health Annual Statement and the

Statement of Actuarial Opinion attached to the NAIC Health Annual Statement must

follow the NAIC Annual Statement Instructions, Health. In addition, for those

companies not exempted from the asset adequacy analysis pursuant to §3.1608 of this

title, the Statement of Actuarial Opinion must follow the applicable provisions of

§§3.1601 - 3.1608 of this title that are not covered in the NAIC Annual Statement

Instructions, Health, including those provisions relating to asset adequacy analysis.

(C) Any company required by §3.4505(b)(3)(G) of this title (relating

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation to General Calculation Requirements for Basic Reserves and Premium Deficiency

Reserves) to opine on the application of X factors, must attach this opinion to the NAIC

Life, Accident and Health Annual Statement or the NAIC Health Annual Statement, as

applicable.

(4) The Texas Health Insurance Pool must prepare and file the following,

in paper copies only with the department:

(A) the NAIC Health Annual Statement with only pages 1 - 6, and

Schedule E Part 1, Part 2, and Part 3 to be completed and filed on or before March 1

for the preceding year ending December 31; and

(B) the NAIC Health Quarterly Statements, with only pages 1 - 6,

Schedule E, Part 1 - Cash, and Part 2 – Cash Equivalents to be completed and filed on

or before May 15, August 15, and November 15;

(5) Each limited purpose subsidiary life insurance company must

complete and file:

(A) the paper copy filings with the department and the electronic

filings with the NAIC specified under subsection (f)(1) – (9) of this section;

(B) an actuarial memorandum and a regulatory asset adequacy

issues summary, in paper copy only with the department, in accordance with and on or

before the due dates provided in Chapter 3, Subchapter Q, of this title; and

(C) the actuarial certification required under the Insurance Code

§841.419, in paper copy only with the department, due on or before March 1 for the

preceding year ending December 31.

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation (j) Requirements for Certain Property and Casualty Insurers. Each fire; fire and

marine; general casualty; fire and casualty; or U.S. branch of an alien insurer; county

mutual insurance company; mutual insurance company other than life; Lloyd's plan;

reciprocal or inter insurance exchange; domestic risk retention group; life insurance

company that is licensed to write workers' compensation; any farm mutual insurance

company that filed a property and casualty annual statement for the previous calendar

year or had gross written premiums in excess of $6 million for the current calendar year;

domestic joint underwriting association; the Texas Mutual Insurance Company; the

Texas Windstorm Insurance Association; and the Texas FAIR Plan Association must

complete and file the blanks, forms, and electronic filings as described in subsections

(f) and (h) of this section and this subsection. The electronic filings with the NAIC must

be completed and filed in accordance with the NAIC data specifications and instructions

and must include PDF format filing, as applicable. Domestic and foreign insurers or

other regulated entities described in this subsection annually must prepare and file the

reports and forms specified in subsections (f) and (h) of this section with the following

exceptions or additional filings:

(1) a combined property/casualty annual statement, if required, due on or

before May 1, for the preceding year ending December 31, in paper copy with the

department and electronically with the NAIC. The combined property/casualty annual

statement is required only for those affiliated insurers that wrote more than $35 million

in direct premiums as a group in the previous calendar year, as disclosed in Schedule T

of the NAIC annual statement(s).

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation (2) an Actuarial Opinion Summary prepared and filed in accordance with

§7.9 of this subchapter (relating to Examination of Actuarial Opinion for Property and

Casualty Insurers).

(3) for Texas county mutual insurance companies, a Texas Supplement

for County Mutuals (Texas Edition) and a Texas Supplemental “A” for County Mutuals

(Texas Edition), in paper copy only with the department, due on or before March 1.

Texas county mutual insurance companies are not required to file an Analysis of

Surplus (Texas Edition) as described in subsection (f)(8) of this section.

(4) The Texas Windstorm Insurance Association must complete and file

in paper copy with the department and electronically with the NAIC the filings specified

under subsection (f) of this section and paragraph (2) of this subsection, on or before

the due dates required under those provisions. Additionally, the Texas Windstorm

Insurance Association must prepare and file in paper copy with the department only:

(A) annual financial statements for each year ending December

31, due on or before March 1, in accordance with the Insurance Code Chapter 2210,

prepared in accordance with generally accepted accounting principles as prescribed or

modified by the Governmental Accounting Standards Board or its successor, and in

compliance with the Government Code §2101.011(d) and any related regulations,

guidelines, procedures, or reporting requirements prescribed by the Comptroller of

Public Accounts; and

(B) quarterly financial statements for the first three quarters of

each calendar year, due on or before May 15, August 15, and November 15, prepared

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation in accordance with generally accepted accounting principles as prescribed or modified

by the Governmental Accounting Standards Board or its successor.

(5) Notwithstanding §5.9927 of this title (relating to Annual and Quarterly

Financial Statements), the Texas FAIR Plan Association must complete and file in

paper copy with the department and electronically with the NAIC the filings specified

under subsection (f) of this section and paragraph (2) of this subsection, except that the

annual statements, the Statement of Actuarial Opinions, and all annual supplements

due on or before March 1 under the NAIC instructions are due on or before March 31;

and the Actuarial Opinion Summary is due on or before April 15.

(6) An insurer that files an application with the department for approval of

a policyholder dividend must file an Analysis of Surplus (Texas Edition) for property and

casualty insurers with the application.

(k) Requirements for Fraternal Benefit Societies. Each fraternal benefit society

must complete and file the blanks, forms, and electronic filings as described in

subsections (f) and (h) and this subsection. The electronic data filings with the NAIC

must be completed and filed in accordance with the NAIC data specifications and

instructions and must include PDF format filing. Domestic and foreign insurers or other

regulated entities described in this subsection must prepare and file the reports and

forms specified in subsections (f) and (h), of this section with the following exceptions or

additional filings:

(1) a separate accounts annual statement (required of companies

maintaining separate accounts), in paper copy with the department and electronically

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation with the NAIC, due on or before March 1 for the preceding year ending December 31.

(2) The Statement of Actuarial Opinion required under subsections (f)(4)

and (h)(1) of this section must be prepared in accordance with the following:

(A) The Statement of Actuarial Opinion, attached to the Fraternal

Annual Statement, must follow the applicable provisions of §§3.1601 - 3.1608 of this

title, except for companies exempted from the asset adequacy analysis pursuant to

§3.1608 of this title. For those companies exempted from the asset adequacy analysis

pursuant to §3.1608 of this title, the format provided by instructions 1 – 12 of the NAIC

Fraternal Annual Statement Instructions must be followed; and

(B) Any company required by §3.4505(b)(3)(G) of this title to opine

on the application of X factors, shall attach this opinion to the NAIC Fraternal Annual

Statement, as applicable.

(l) Requirements for Title Insurers. Each title insurance company must complete

and file the blanks, forms, and electronic filings as described in subsections (f) and (h)

and this subsection. The electronic filings with the NAIC must be completed and filed in

accordance with the NAIC data specifications and instructions and must include PDF

format filing.

(m) Requirements for Health Maintenance Organizations. Each health

maintenance organization licensed pursuant to the Insurance Code Chapter 843 and

each insurer that is subject to life insurance statutes and is permitted or allowed to do

the business of health maintenance organizations must complete and file the following

blanks, forms, and electronic filings as described in subsections (f) and (g) of this

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation section and this subsection. The electronic filings with the NAIC must be completed

and filed in accordance with NAIC data specifications and instructions and must include

PDF format filing. The Texas specific electronic filings regarding HMO data requested

by the department must be completed and filed in accordance with the instructions

provided by the department. Domestic and foreign health maintenance organizations

and insurers described in this section must prepare and file the reports and forms

specified in subsections (f) and (g) of this section, with the following additional filings:

(1) with each quarterly statement filing with the department and the NAIC,

include an up-to-date and completed Schedule E, Part 3 – Special Deposits, utilizing

the format from the Health Annual Statement;

(2) a Texas HMO Supplement Annual (Texas Edition), in paper copy and

electronically only with the department, due on or before March 1, containing annual

data for the preceding year ending December 31, to be completed according to the

instructions provided by the department; and

(3) a Texas HMO Supplement Quarterly (Texas Edition), due on or before

May 15, August 15, and November 15, in paper copy and electronically only with the

department, containing quarterly statement data, to be completed according to the

instructions provided by the department.

(n) Requirements for Farm Mutual Insurers not Subject to the Provisions of

subsection (f) of this section. Farm mutual insurance companies not subject to

subsection (f) of this section annually must complete and file the following blanks and

forms with the department only, on or before March 1 for the preceding year ending

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation December 31:

(1) Annual Statement (Texas Edition);

(2) Texas Overhead Assessment Exemption Form (Texas Edition). This

form is to be filed only by domestic insurance companies that have qualified pension

contracts under the Insurance Code §401.151; otherwise, this form should not be filed;

and

(3) Statement of Actuarial Opinion, unless exempted under §7.31 of this

subchapter (relating to Annual Statement Instructions for Farm Mutual Insurance

Companies).

(o) Requirements for Statewide Mutual Assessment Associations, Local Mutual

Aid Associations, Mutual Burial Associations, and Exempt Associations. Each

statewide mutual assessment association, local mutual aid association, mutual burial

association, and exempt association must complete and file the following blanks and

forms with the department only, on or before April 1 for the preceding year ending

December 31:

(1) Annual Statement (Texas Edition) (exempt companies are required to

complete all pages except lines 22, 23, 24, 25, and 26 on page 3, the special

instructions at the bottom of page 3, and pages 4 - 7);



contracts under the Insurance Code §401.151; otherwise, this form should not be filed;

(3) Release of Contributions Form (Texas Edition);

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation (4) 3-1/2 Percent Chamberlain Reserve Table (Reserve Valuation)

(Texas Edition);

(5) Reserve Summary (1956 Chamberlain Table 3-1/2 Percent) (Texas

Edition);

(6) Inventory of Insurance in Force by Age of Issue or Reserving Year

(Texas Edition); and

(7) Summary of Inventory of Insurance in Force by Age and Calculation

of Net Premiums (Texas Edition).

(p) Requirements for Nonprofit Legal Service Corporations. Each nonprofit legal

service corporation doing business as authorized by a certificate of authority issued

under the Insurance Code Chapter 961 annually must complete and file with the

department only the following blanks and forms for the preceding year ending

December 31. An actuarial opinion is not required. The following forms are to be filed

on or before March 1:

(1) Annual Statement (Texas Edition); and



contracts under the Insurance Code §401.151; otherwise, this form should not be filed.

(q) Requirements for Mexican Casualty Insurance Companies. Each Mexican

casualty insurance company doing business as authorized by a certificate of authority

issued under the Insurance Code Chapter 984, annually must complete and file the

following blanks and forms with the department only for the preceding year ending

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation December 31. All submissions must be printed or typed in English and all monetary

values must be clearly designated in United States dollars. The form identified in

paragraph (1) of this subsection must be completed to the extent specified in paragraph

(1) of this subsection and in accordance with the latest edition of the property and

casualty annual statement instructions adopted by the NAIC. An actuarial opinion is not

required. It is the express intent of this subsection that it shall not repeal or otherwise

modify or amend any department rule or the Insurance Code. The following blanks or

forms are to be filed on or before March 1:

(1) an annual statement using the latest edition of the property and

casualty annual statement blank adopted by the NAIC; provided, however, only pages 1

- 4, and 104 (Schedule T) are required to be completed;

(2) a copy of the balance sheet and the statement of profit and loss from

the Mexican financial statement (printed or typed in English);

(3) a copy of the official documents issued by the Comisión Nacional de

Seguros y Fianzas approving the annual statement for the preceding year ending

December 31; and

(4) a copy of the current license to operate in the Republic of Mexico.

(r) Other Financial Reports. Nothing in this section prohibits the department

from requiring any insurer or other regulated entity from filing other financial reports with

the department or the NAIC.

(s) Annual notice and opportunity to petition for adoption of a rule amendment to

this section. The department annually will publish notice of the annual, quarterly, and

TITLE 28. INSURANCE Proposed Section Part 1. Texas Department of Insurance of 46 Chapter 7. Corporate and Financial Regulation supplemental filing checklists that reference the latest editions of the annual statement,

quarterly statement, forms and instructions adopted by the NAIC and the Texas-specific

filing forms and instructions. On or before 30 days after the department publishes its

notice, any interested person may petition the department for the adoption of a rule

amendment to this section under §1.60 of this title (relating to Petition for Adoption of

Rules), or its successor, for exceptions to the latest editions of the blanks, supplemental

reporting forms, and instructions adopted by the NAIC or the department.

Subchapter A. Examination and Financial Analysis …TITLE 28. INSURANCE Proposed Section Part 1....

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Transcript of Subchapter A. Examination and Financial Analysis …TITLE 28. INSURANCE Proposed Section Part 1....